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Scale Of Production - PART II

 Scale of Production - PART II
  • Diseconomies of Large Scale Production
  • The following are the limits to large scale production.

    • Financial Diseconomies - An entrepreneur requires funds to enlarge his venture. But as we think, funds are not feasible to rise easily as appropriate amount and in correct time the funds may not be acquired. Inadequate funds restrict the concern from enlarging in the necessary direction and retard its production plans thereby enhancing costs.

    • Managerial Diseconomies - The check to the further enlargement of a concern occurs due to the failure on the part of the management to supervise and control the business properly.

    • Marketing Diseconomies - The enlargement of a concern ahead of a specified limit may also involve marketing difficulties. Raw materials may not be available in adequate volume due to their scarcities.

    • Technical Diseconomies - A large scale concern frequently operates heavy capital equipment which is indivisible. Its aim is to maximise profits which it does by equalising its marginal costs with the price of the marginal revenue of the product maximum capacity. It may have excess capacities or idle capacity.

    • Diseconomies of Risk-taking - As the scale of production of a firm expands risks also amplifies with it. An error of judgement on the part of the sales manager or the production manager may badly affect sales or production which may lead to great loss.

    • External Diseconomies - If an industry enlarges as a whole its growing demand for a variety of manufacture like labour, capital, raw materials etc may eventually raise their prices.

  • Advantages of Large Scale Production

    • Internal Economies - They arise within the concern for the reason that the enlargement of the size of that specified concern and they are called the economies of scale.

    • External Economies - They arise within the enlargement of the industry. These are generally the outcome of large scale production and are linked with further division of labour.

    • Use of Machines - The large scale production always makes use of machines. Hence all the benefits of the use of machinery are accessible.

    • More Production - The large scale industries can produce more goods. For instance, a huge sugar industry can use molasses to make spirits and thus can reduce the cost of production of sugar.

    • Economies of Organisation - With an increase in the dimension of the concern, the cost of management is reduced.

    • Low cost of production - The large scale production offers many types of economies. Presumed that there are two diverse factories of manufacturing 1000 units of a product. For these two factories there should be two different managers. But if the scale of manufacture is expanded and in one factory we start producing 1500 units of the same product, the work can be overseen by one manager. In this way, in the large scale production, the salary of one manager is saved. So the cost of production is reduced.

  • Disadvantages of Large Scale Production

    • Evils of Factory System - The large scale production is escorted by all the evils of the factory system like over crowding, density, pollution, etc. Dirty habits of drinking and gambling spread very easily.

    • Monopoly - The large scale production upshots in the localisation of industries. Consequent, the bigger fish swallows the smaller ones and cut-throat competition and monopolies result.

    • Dependence of foreign market - A huge manufacturer has usually to depend on the overseas market. The overseas markets may be cut off by hostilities etc. this makes the business perilous.

    • Lack of Adaptability - As large capital is ventured in the large scale production, it is very complicated according to the situation.

    • Unequal Distribution of Wealth - All wealth and earnings of the nation get focussed in the pockets of big producers due to large scale manufacture. There is unequal distribution of wealth and resources on account of the large scale production. The rich becomes richer whilst the poor, poorer.

  • Advantages of Small Scale Production

    • Nature of Demand - The small producer has an advantage over the large producer when the demand is either small or is frequently varying. He has thus a ball of his own where he has benefit over the large scale manufacturer.

    • More Employment - In the event of large scale, redundancy existing in the nation the growth of cottage and small scale industries is of great help to create more employment opportunities.

    • Need of small capital - The small scale production can be started with small capital. When there is insufficiency of capital, the small scale industries are of great advantage for the growth of industries.

    • External Economies - The small scale production secures all kinds of external economies which are available to large units also, there is no risk of monopoly

  • Disadvantages of Small scale Production

    • High Cost of Production - The cost of production per unit increases since there is a high cost of work, a very small exposure for division of labour and lesser use of machinery.

    • Less use of Machines - In small scale manufacture, there is less exposure of use of machineries. Most of them are done by hands.

    • Difficult in getting loans - It does not have the benefit of acquiring loans and if they have to acquire has to pay a higher rate of interest.

    • Lack of Research - The small scale industries have restricted modes at their dumping. They are not able to expend much on research in the field of science and technology.

    • Hard to façade rivalry with large scale manufacturers - if some large scale producers enter the market the small producers discover it complex to compete with them. The small manufacturers pass away at the hands of the large scale manufacturers.

  • Causes of Survival of Small Scale Industries

    • Perishable Goods - These commodities are not profitable to create on a large scale for the reason that these goods cannot be warehoused and transported to distant markets.

    • Unstable Demand - If the production of certain goods is dependant upon the nature of its demand, particularly if the demand is restricted, local or changing, it is not appeal while to have large scale manufacture.

    • Congenial Environment - In the case of small industries, there is further benefit of working in a very congenial surrounding of feeling at home and receiving unpaid aid from the members of the family. The job surrounding will be pleasant and is carried on even though it is less lucrative.

    • Subsidiary Industries - Occasionally the very activeness of the large scale manufacture creates work for the small scale manufacturers e.g. revamping cars, trucks, two wheelers, small business units act as a surrogate for large business units. As such they have ample chances to survive.

    • State Patronage - In many countries the government has also taken part for the survival of small scale industries. Extraordinary facilities are provided by the government to the small units. It is a great incentive that helps much in the growth of cottage and small scale units.

    • Artistic Commodities - These types of commodities are not feasible to manufacture on large scale, since their demand is very low. So these commodities are manufactured on a small scale basis.

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